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Top Causes of AML Compliance Program Failures, and How to Overcome Them?

Financial institutions such as banks and money exchanges and Designated Non-Financial Businesses and Professions (DNFBPs) i.e audit and accounting firms, law firms, real estate brokers, Dealers in Precious Metals and stones and Trust and Corporate service providers in the UAE are required to develop a robust framework for countering money laundering and financing of terrorism. Implementing an Anti-money Laundering and Combatting Financing of Terrorism (AML-CFT) policy is a key requirement as per the UAE AML Law. AML consultants in Dubai can help companies to develop an effective AML-CFT policy.

However, the AML-CFT policies implemented by some companies may fail due to a wide range of reasons. A weak AML-CFT policy will give criminals an opportunity to launder their money through your firm. A weak AML-CFT framework will also attract hefty penalties from the regulators. This article will help you to understand the Top causes of AML compliance program failures, and recommendations to overcome them:

1. AML Compliance Officer

Not appointing a Money Laundering Reporting Officer (MLRO) or appointing an unqualified AML officer who has no knowledge and skills to nurture and communicate with the staff about the importance of compliance is a big common mistake done by the organisations.  An unqualified AML compliance officer is one of the top causes that weaken an organisation’s AML compliance program. Financial institutions and DNFBPs are required to appoint an MLRO according to Article 20 of Cabinet Decision No 10 of 2019 on Anti-Money Laundering & Combating the Financing of Terrorism. Organisations that fail to appoint an MLRO will attract a penalty of AED 50,000.

2. Lack of Proper AML Compliance Training

Article 21 of the Cabinet Decision No (10) of 2019, states that an AML officer must prepare, execute and document the ongoing AML training programs for the company’s employees. However, many organisations fail to provide continuous AML training and support to employees, attracting hefty penalties. Employees of an organisation are the best line of defence against money laundering and terrorism financing. Therefore, they should be trained on key AML-CFT aspects such as:

  • Money laundering techniques and typologies employed by the criminals,
  • A company’s AML policies, procedures and systems
  • Skill to identify suspicious activities and report them to MLRO
  • Responsibility of each employee toward countering money laundering

3. Not having clarity over AML complied customer database

Many financial institutions and DNFBPs struggle when it comes to handling customer data efficiently. Properly using customer data is essential to crack down on criminals and stop acts of money laundering. A company’s AML-CFT program is bound to fail if the customer data is incomplete, not easily accessible, or stored only in physical form. Companies find a solution for this deficiency by consulting with the best AML consultants in Dubai.

4. Weak or inadequate KYC process

The AML framework designed by a company will fail if their Know Your Customer (KYC) is weak or inadequate. The purpose of a KYC process is to verify the identity of a customer. KYC prevents financial institutions and DNFBPs from being exploited by criminals for money laundering activities. A robust KYC process enables organisations to better understand their customers and their financial dealings.

Knowing a customer is essential for financial institutions and DNFBPs to serve them better and manage the risks efficiently. KYC is one of the most vital components of AML compliance and the lack of it will enable criminals to easily launder money. AML consultants in the UAE can advise organisations on developing a robust KYC process.

5. Customer Due Diligence based on Customer Risk Rating

Once a customer submits the KYC form with the complete information, the company should rate the customers (High Risk, Medium Risk and Low risk) and select an appropriate Due Diligence procedure (SDD-Simplified Due Diligence, or EDD-Enhanced Due Diligence) based on the risk rating. Experts cite insufficient CDD measures as a key issue that weakens a company’s AML-CFT framework. Criminals can easily exploit such companies for money laundering acts.

6. The high number of false positives

Having false positives adversely affects the efficiency of AML compliance programs, leading to a wastage of time and resources. A false positive is essentially a false alarm generated by the system during list screening, which requires investigation by the compliance officer. The system will a false alert on a screened entity, while in reality, the scanned name may not be the same blacklisted entity. False positives are costly for the company considering the resources spent on investigation and the blocked transactions.

How to Strengthen your Company’s AML-CFT Program?

Preventing an AML compliance program from failing is essential for financial institutions and DNFBPs due to regulatory reasons. A weak AML-CFT program will let criminals launder illicit money through your organisation. Eventually, your organisation will incur hefty penalties from the UAE government. The following steps can be implemented to strengthen your company’s AML-CFT framework:

1. Inculcate a strong compliance culture

You have to take the initiative to develop a strong compliance culture within your organisation. Management should be willing to implement all the mandatory requirements to comply with the AML-CFT laws. An AML officer should be appointed and the employees should be aware of the importance of ensuring compliance. Company leaders should ensure that AML compliance doesn’t take a backseat while trying to maximise profits.

2. Take help from AML experts in the UAE

The companies operating in the UAE are fairly new to the AML-CFT compliance regime. Many financial institutions and DNFBPs are still lacking when it comes to ensuring AML compliance in the UAE. Most organisations lack knowledge about the compliance requirements or are unaware of how to properly implement them.

However, hiring AML consultants in the UAE can help organisations to ensure regulatory compliance. AML experts have in-depth knowledge about the AML laws and regulations and can simplify the process for their clients. AML consultants can help the companies to develop a strong AML-CFT framework and impart AML training to employees.

3. Implement robust AML software

Implementing robust AML software is essential to track suspicious accounts and trace the source of illicit money. Money launderers improve their methods of crime in tandem with the advancements in technology. This puts the burden on the companies as they are forced to enhance their AML infrastructure and protocols. Companies must embrace software that uses the latest technology such as AI to effectively counter the acts of money laundering.

Avail AML services Offered by Jitendra Chartered Accountants

Developing a strong AML-CFT policy is a complex regulatory task that requires assistance from the best AML consultants in Dubai such as Jitendra Chartered Accountants (JCA). Lack of knowledge about AML laws can weaken your AML-CFT program, but JCA can help you strengthen it. JCA chiefly offers the following types of AML services in the UAE:

  • Industry-specific AML Risk Assessment
  • Implementation and review of effective AML/CFT program
  • Advice on staffing requirements for AML/CFT department
  • Assistance with staff awareness training
  • AML Penalty Appeal Services
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